Major business organization forms

 While starting a business, choosing the form of the business organization is one among the important decision which will further decides many more factors. The form of the business organizations impacts majorly on different factors and it will also play a major role in deciding the future of the company.


There is required to align your mission with the type of business organizations in order to achieve the desired success. So in order to choose the best form of the business organization as per your goals, you should first understand the major types of the business organization.


Here in this guide, we are going to discuss on major forms of business organization.


Major business organization forms


There are basically four forms of business organizations. These four forms will impact several factors of the business like:


How the organization will be taxed?

What will the operation costs in the business?

What will be the legal liability on the business operators?

What will be the costs for the formation of the business? 

The four forms of the business are:


Sole proprietorship

Partnership

Corporation

Limited liability Company (LLC)     

Sole proprietorship


Sole proprietorship is the most simplest and the common form of business organization or the business ownership where the entire business is operated by single owner. In the sole proprietorship kind of business, all the organizational operations are handled by the single owners and they will be responsible for all the profit as well as loss in the company. In this kind of business form, the operation and all the decisions of the business entirely depends on the single owner. And, thus the single owner will have all the power to take any decision for growth of the company.


Pros of having the Sole proprietorship business


The major benefit of having the sole proprietorship business is that all the profit will goes to the single owners. Since the entire company is managed by single owner, thus the owner will be the one to enjoy all the profit and they do not require to share or split their profit with others.

As mentioned, all the business operations in sole proprietorship kind of business organization will be solely handled by single owner. And, thus they will be having all the power to run the business they want. They do not need to consult or consider others opinion in order to run their business. All the decision of the organization will be taken by single owner and they will have all the power to decide the direction or the decision of the business.

The sole proprietorship business kind is comparatively easy to start and can be start with few assets.

Less paper work is another benefit associated with the sole proprietorship business. The owner does not require to register their business with any of the government authority. With minimal or no paperwork, the sole proprietorship can be started.

All the assets and the company belongs to single owner and thus the owner of the business will have all the power to start or stop the business any time.

Cons of sole proprietorship business


For all the losses and debts, the single owner will be solely responsible.

In worst case scenario, the owner might need to use their personal assets or the properties in order to fulfill the liabilities.

In sole proprietorship, the ownership is quite tough to transfer.

There will be no distinction between the business and the personal income.

Partnership


Another kind of business organization is partnership. Partnership can be further of two types: General partnership and the Limited partnership.


In general partnership business form, all the owners will invest their money and efforts and all will be equally liable for all kind of losses as well as debts. The general partnership do not requires much paperwork. All needed is an partnership agreement with signature of all the owners and business can be started.


But in limited partnership, there is needed formal agreement. In this kind of partnership business form, the liability of any of the owner can be limit depending on their investment or efforts.    


Pros of having partnership business form


In partnership, the owners will get extra sets of hands for running the business. The work pressure of the business will not be on the single person and all of the owners can contribute in growing the business faster.

Share resources and investment will helps in easy collection for the funding required for starting a business.

Distribution of liability on more than one owners will reduce the burden from single person.

Each owner can manage the particular organizational work depending on their skills.

While deciding the future or making business plan, opinions from more than one owner will help in taking better decision for the company.

Cons of partnership


Error by one owner will make other owners to face losses in business.

Selling business will be difficult.

Conflicts and disagreements while deciding business strategy or taking any decision for the business.

Corporation


It is another kind of business model which is considered to be a legal person. The profit generated in a corporate business is taxed as legal entity and the income distributed to the shareholders are again taxed as their personal incomes.


Pros of corporate business


Limited liability of the owners to losses and debts

All the profit and the losses is of the corporation

Easily transferable to new owner

Owner does not require using their personal asset for paying debts.

Cons


Expensive

More paperwork and formalities

Income taxed twice

Limited liability company (LLC)


It is kind of partnership business which combines the pros of corporate and partnership business.


Pros


Limited liability of the owners

No double taxation

 


Cons


Complex and comprehensive agreements

Expensive to establish

The bottom line


So these are four major kind of business models!